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Bet on This Big Money Investor if You Want to Beat the Market

BlackRock is making the right moves for a manic market.

More than anything else, managers determine returns. They set strategy, hire key team members, oversee operations, and cash paychecks. Every move they make either enhances or destroys shareholder capital.

It pays to know who these men and women are, how they're paid, whether they, too, are owners, and how they perform versus competitors in certain key metrics. In this regular column, I'll examine all that and more with the goal of enhancing our understanding of some of the top stocks in Fooldom.

Next up: BlackRock(NYSE: BLK). Is the executive team of this asset management firm doing all it can to earn you outsized returns?

Foolish facts

Metric

BlackRock

CAPS stars (out of 5)

***

Total ratings

397

Percent bulls

88.9%

Percent bears

11.1%

Bullish pitches

40 out of 45

Highest rated peers

Main Street Capital Holdings, PennantPark Investment, Rand Capital

Data current as of March 8.

Asset management is a tough business. Just ask anyone who's been managing a portfolio of investments lately. Between Mideast turbulence and $100 oil, Mr. Market has thrown more fits than a two-year-old. Keeping cool isn't easy when the market's running hot.

But this is what clients expect from BlackRock: patient investments and steady, long-term returns. The company's funds haven't always delivered. According to Morningstar data, BlackRock's family of funds underperformed the category average in both 2009 and last year. This year's 3.5% year-to-date total return is 20 basis points better than the average. A reversal could come at any point.

So be it. You won't see the bargain-shopping Fools at Motley Fool Inside Value running for the hills. As analyst Philip Durell rightly pointed out in recommending the stock to members last summer, BlackRock has a history of successful acquisitions, a good product mix, and a healthy dividend that yields 2.8% as of this writing.

In fact, it's the boring old dividend that may be the most exciting part of this stock story. BlackRock has used a portion of its healthy cash flows to boost its dividend payout by an average of 14.3% annually over the past three years, Capital IQ reports. That's as close as you'll get to guaranteed growth in a market that guarantees nothing.

BlackRock's portfolio exposure may also provide comfort. The manager's three largest holdings as of this writing were ExxonMobil(NYSE: XOM) at 1.54% of the portfolio, Apple(Nasdaq: AAPL) at 1.18% of the portfolio, and Chevron(NYSE: CVX) at 0.80% of the portfolio. ExxonMobil and Chevron have rallied in the wake of rising oil prices, while reasonably priced Apple looks poised to profit from the new iPad, which is due in stores tomorrow.

Management overview

Executive

Years

Cash Compensation

Shares Owned*

Laurence Fink, Executive Chairman and CEO

11

$9,550,000

1,349,419.28

Robert Kapito, President

9

$7,410,200

351,786.6

Ann Petach, Chief Financial Officer

3

$2,105,000

33,701

Susan Wagner, Vice Chairman

6

$2,912,500

529,304.8

Source: Capital IQ, a division of Standard & Poor's. (Data current as of March 8.)*BlackRock includes restricted stock units in its Form 4 calculations of direct ownership.

Management is where the story gets interesting. CEO Laurence Fink owns a small but still impressive chunk of the company, and each of the key insiders accept restricted stock as part of their compensation.

In Fink's case, close to 113,000 shares he's deemed to own per Form 4 disclosures remain under vesting restrictions. He'll do better if the stock rises between now and when these shares are released to him for sale.

History also speaks well for the BlackRock team. As Foolish colleague TMFMMTInvestor pointed out in a CAPS pitch from last August, BlackRock's book value per share has increased dramatically during Fink's tenure -- from $7.54 in 2001 to $136.48 by the end of last year.

Management analysis versus competitors

Company

Insider Ownership

SG&A Margin

ROA*

ROE**

BlackRock

2.26%

20.7%

1.1%

8.1%

Legg Mason(NYSE: LM)

7.99%

10.6%

3%

4.3%

State Street(NYSE: STT)

0.66%

55.7%

1%

9.5%

UBS(NYSE: UBS)

Not available

75.3%

0.6%

16.3%

Source: Capital IQ, a division of Standard & Poor's. (Data current as of March 8.)*Return on assets. **Return on equity.

BlackRock and its peers are about equally matched according to the data in this table. But if you filter by ownership profile, Legg Mason is the closest comparable. Insiders at the house that employs legendary value investor Bill Miller own a sizable chunk of the business.

Force me to choose between these two, and I choose BlackRock for its lower earnings multiple, richer dividend, history of dividend growth, and better margins and returns on common equity. Management is doing exactly what it's supposed to be doing.

Do you agree? Disagree? Let us know what you think about BlackRock's portfolio, valuation, and the asset management industry as a whole using the comments box below. You can also rate BlackRock in Motley Fool CAPS.

Author

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment. Find him online at timbeyers.me or send email to tbeyers@foolcontractors.com. For more insights, follow Tim on Twitter.